Wednesday, January 07, 2015

The world of public debt

FT chief economics commentator Martin Wolf discusses global debt sustainability with Gavyn Davies, chairman of Fulcrum Asset Management. They point out the improving situation in the US and UK, but are concerned about the Eurozone periphery and China.

Despite the biggest restructuring in history in 2012, Greece’s debts are still at about 174% of GDP, a fact that has helped the radical left Syriza party ride high in the polls on a platform of “debt forgiveness” from the country’s lenders ahead of elections later this month.

Together with the IMF, the Financial Times says that it has designed an online, interactive tool based on the fund’s economic model that calculates a country’s debt trajectory and how it is affected by an array of factors such as economic growth, borrowing costs and public belt-tightening. Assumptions can be tweaked to see how debts can be tamed, or increased. But it cannot determine exactly when a country is bankrupt.